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fomc | 1,978 | I just have a question to Jim. Did I follow, Jim, that you were suggesting that maybe because of the weather the housing growth has been borrowing from the future? You would [expect] some considerable weakening because of borrowing-- | 46 |
fomc | 1,978 | That's right. I might say there's no way to understand the fact that we have had a great deal of strength in that sector. We checked with a number of major builders and there has been a suggestion that the weather has been quite good and that, combined with their expectation of generally tighter mortgage market conditi... | 91 |
fomc | 1,978 | Jim, what about the seasonal adjustment in November? Could a small increase in actual starts with good weather show up as a bigger number in the seasonal adjustment? | 31 |
fomc | 1,978 | I don't believe the November seasonal is that big. The December and January ones are quite big. I might note that the only area that increased in November was the North Central area. And in October that's where home sales just went through the roof; there was something like a 120 percent increase. | 59 |
fomc | 1,978 | In the Northeast? | 4 |
fomc | 1,978 | In the North Central region. Every other area in the country was down on the starts figures this month. | 21 |
fomc | 1,978 | Sounds like a good explanation until you start adding in the future figures of the home builders and other mortgage groups that are making commitments at a faster-- | 29 |
fomc | 1,978 | That's right. You can get caught with the lags in this process, as you know, and things could fall apart right quickly. I noted in reading the Redbook that sprinkled throughout each District Bank's report was essentially a tightening flavor in the mortgage market and a slackening of housing activity. But it's clearly n... | 73 |
fomc | 1,978 | Nancy. | 2 |
fomc | 1,978 | You've moved up your price expectations. Is that the result of the rise in crude oil prices? Is that the major impetus behind that? | 27 |
fomc | 1,978 | No, we have had an expectation of about an 8 percent [increase in crude] prices. We haven't changed that much for 1979. It's the energy side, where I think we just underestimated the impact of natural gas prices--for example, what had been happening to gasoline prices. That's really the key. We did not change our [crud... | 165 |
fomc | 1,978 | But the gasoline prices started up before the OPEC price increase. You didn't think-- | 17 |
fomc | 1,978 | No, that's right. | 5 |
fomc | 1,978 | This doesn't include the OPEC thing. | 8 |
fomc | 1,978 | No, it does not. We had 7-1/2 percent. We are at 7-1/2 percent. | 27 |
fomc | 1,978 | Which was from January 1, incidentally. So you have to realize that it is only less in the beginning and more at the end. | 29 |
fomc | 1,978 | That's right; it's 7-1/2 versus 10. And we don't have the extra 2-1/2 percent on average, but the latter half of the year looks poor. | 40 |
fomc | 1,978 | Paul. | 2 |
fomc | 1,978 | Well, after that conversation I would just offer an observation. It's hard for me to see how you get down to this 7 to 7-1/2 percent range in prices in the second half of next year unless you are putting an awful lot of weight on the President's program. But that's not my question. My question is budgetary. I think you... | 154 |
fomc | 1,978 | Which year is that---the '79 fiscal year? | 11 |
fomc | 1,978 | You get a recession, Paul. | 7 |
fomc | 1,978 | Well, it's not early enough to have-- They also have a very large one in the following year. That's maybe a recession, but I don't think a recession is the full explanation this year. All I asked for is comments from the staff about this possibility. | 52 |
fomc | 1,978 | Isn't this true of the New York community generally--that they are always projecting a bigger budget deficit? | 21 |
fomc | 1,978 | What surprises me about this is that some of them have been ahead of the government in projecting a lower deficit in recent years and lower expenditures, which has turned out to be the case. Now it seems to be reversed. | 44 |
fomc | 1,978 | Well, it's hard-- Jim, let's get it back in focus. Jim, tell us about all that new employment and personal income that's going to [generate] all that revenue. | 36 |
fomc | 1,978 | Well, the question on the full employment surplus or deficit, from the fourth to the first quarter there is virtually no change, [even] with a tax cut. At the same time we have the social security tax increase, which is a partial offset; and on the expenditure side we have a fairly slow growth of expenditures related t... | 136 |
fomc | 1,978 | Which is similar to the Administration's figure. | 9 |
fomc | 1,978 | That's right, though we would like to think that we have done our own work. We do have differences in various categories. We have some outlays a bit lower. We think there will be a little bit in the way of shortfalls, not a great deal. But we have somewhat higher interest payments so they are offsets. But in total we a... | 101 |
fomc | 1,978 | Well, it is also vague in the accounting. That is, the social security tax increase--even though the major part of it is an increase in the ceiling and doesn't take effect until the latter part of the year--shows up totally in the first quarter. | 52 |
fomc | 1,978 | I understand that. Still that's only half the tax reduction, or a little more than half. | 19 |
fomc | 1,978 | Ladies and gentlemen, I think we are perhaps ready to try to get your inputs individually. Through careful analysis of past meetings, it has been determined that the proper procedure today would be to start with Henry Wallich, who isn't here, and go clockwise. I suppose he is frightened about the possibility of being t... | 65 |
fomc | 1,978 | He had a very brief statement today, didn't he? | 11 |
fomc | 1,978 | I would ask for three components, or two particularly, on the economy as you see it, in terms of any variance from the staff forecast. It need not be numerical; it can be qualitative or quantitative. Also, I would particularly like each of you to comment on how you read the implications for monetary policy at the momen... | 99 |
fomc | 1,978 | Well, Mr. Chairman, it seems to me that we have not made enough headway toward slowing this economy down. I am very sorry to see the large increase in real GNP. That sounds cruel to say, but accompanied with that is a major increase in inflation and another further jump of 0.7 percent even on the average wages. I can't... | 336 |
fomc | 1,978 | Thank you, Phil. Henry, you were the lead-off man, but we skipped you. So we are going to come back to you. We are not going to omit you. | 37 |
fomc | 1,978 | You want me to [comment now]? | 8 |
fomc | 1,978 | Please. | 2 |
fomc | 1,978 | Well, it seems to me that the economy is now in a state of demand-pull inflation--aggregates or no. We are beginning to push against the capacity limits. The Redbook reports particular areas are filled with considerable pressure, although the general tone of the Redbook was not all that strong. We are getting inflation... | 434 |
fomc | 1,978 | How about real growth? | 5 |
fomc | 1,978 | Real growth has been slower than expected also. | 9 |
fomc | 1,978 | Also working down throughout the projection? | 7 |
fomc | 1,978 | Yes. That reflects the poor productivity performance [which] is another inflation factor. So I think not only have we done much better on unemployment than we expected and much worse on inflation than we expected, but we also seem to have a built-in bias toward a low inflation forecast, whatever the cause of that. When... | 238 |
fomc | 1,978 | Thank you, Henry. Frank. | 7 |
fomc | 1,978 | Mr. Chairman, I don't think we understand what is really going on in the economy. | 18 |
fomc | 1,978 | I'll go along with that. | 6 |
fomc | 1,978 | I think it's because we haven't had enough experience judging the reaction of both the consumer and the investor to an economy with a high rate of inflation. | 29 |
fomc | 1,978 | That's right; we haven't had any experience. | 9 |
fomc | 1,978 | Quite clearly, the numbers coming in over the past month are vastly stronger than I had expected and I think stronger than any of us had expected. And I think it's quite possible that the fourth quarter will be even stronger than the staff has projected and perhaps the first quarter as well. At the same time, we are ge... | 375 |
fomc | 1,978 | Thank you, Frank. Ernie. | 8 |
fomc | 1,978 | Mr. Chairman, I, too, am impressed with this conflicting evidence. As a result of that, I am more ambivalent than usual today in terms of policy. [Let me mention] a couple of facts that may be of interest. As you know, we have a large builder on our board who builds pretty much around the country and also a bit abroad.... | 750 |
fomc | 1,978 | Thank you. John. | 5 |
fomc | 1,978 | Without repeating some of the comments that have been made by the four preceding figures that I am in agreement with, I would stress that in my judgment--and I have been arguing it for some months--we are and have been at practical full employment, both with respect to labor and plant capacity. And I think that if infl... | 606 |
fomc | 1,978 | Thank you, John. Mark. | 7 |
fomc | 1,978 | Thank you, Mr. Chairman. With regard to inflation, I still see about 8 percent. It's not surprising that we continue to see high numbers. It just takes a long time to [see the effects of policy tightening]. We are going to see high numbers from now until sometime fairly far into the next year and, unfortunately, we hav... | 447 |
fomc | 1,978 | You have turned soft. You are only recommending 11 percent! | 13 |
fomc | 1,978 | I am not willing to jettison the aggregates. They're imperfect but they are one of the few things that we have some strong analytical and theoretical base for. I think they are just fraught with problems. Steve mentioned the possibility of a shift in demand. If that's going on at the same time we have ATS going on, we ... | 248 |
fomc | 1,978 | Bob. | 2 |
fomc | 1,978 | Well, Mr. Chairman, we just witnessed a new form of "Mark" intervention! To capitalize on what John was saying a minute or so ago on the strength of the fourth quarter, I would add to consumer restlessness that prices may go up, producer restlessness--and maybe consumers, too--with regard to potential strikes and still... | 613 |
fomc | 1,978 | Thank you, Bob. Roger. | 7 |
fomc | 1,978 | Mr. Chairman, with respect to our view, it's not greatly different from the staff's projections. We would be a bit less optimistic about growth in 1979 and then again about the distribution throughout the year. We think there's enough strength going into the first quarter [to be] fairly strong in '79. If we're somewhat... | 459 |
fomc | 1,978 | Thank you, Roger. Well, we'll leap across the table to our colleague. | 16 |
fomc | 1,978 | Mr. Chairman, the trend of the economy in our District roughly parallels the staff observations. Loan demand continues to be strong and we don't see any serious indications of excessive inventory accumulation. As for Christmas retail sales, any information we can get seems to indicate they will be fairly strong. Howeve... | 432 |
fomc | 1,978 | Thank you, Larry. Bones. | 7 |
fomc | 1,978 | Mr. Chairman, it's our judgment that we would prefer to see some slight additional firming. Loan demand continues strong, but we are not observing any real likelihood of a crunch. It seems to me that funds would be available at a price. And indeed, we aren't very comfortable in feeling that the money growth moderation ... | 249 |
fomc | 1,978 | Thank you, Bones. Dave. | 7 |
fomc | 1,978 | Well, I would hold steady for this meeting, and I'll try to give the explanation for that position. It seems to me that until recently there have been two general scenarios about the business outlook. One is the one that's in the Greenbook, which is a gradual steady downward movement without recession. The second is th... | 401 |
fomc | 1,978 | Thank you, Dave. Willis. | 7 |
fomc | 1,978 | Things are rather bizarre in Cleveland. I hope you won't think that I am following the Cleveland tradition in my comment. I'd like to take a little different path. I think we are frozen in a pattern of operation that should be reexamined when you think about our focus on rates. If we examine other underlying conditions... | 646 |
fomc | 1,978 | Any chance of it coming to Washington? | 8 |
fomc | 1,978 | It would be welcome, I'm sure. The natural gas [situation] that Ernie mentioned is not restricted to Texas. It's also prevalent in Ohio; excesses are being reported and they have no storage space. It's partly that the winter weather has been mild in contrast to previous winters. So we do have excess showing in that are... | 188 |
fomc | 1,978 | Thank you, Willis. Bob. | 7 |
fomc | 1,978 | Mr. Chairman, we were a bit surprised by the strength in the fourth quarter. I don't think it has really altered our overall picture of next year except to push a little further in the future the weakness we thought might occur somewhere around the second or third quarter. As far as the year as a whole is concerned, we... | 459 |
fomc | 1,978 | But year-over-year, Bob? | 7 |
fomc | 1,978 | Yes, year-over-year. | 6 |
fomc | 1,978 | The first quarter of '78 to the first quarter of '79. | 14 |
fomc | 1,978 | That's right. To take care of it, we raised this from the 7 percent we had to 7-1/4 percent. But even with this adjustment, we have a path of the implied growth rate in December-January of 4-1/2 percent. Against this background, the rates of growth that are the trigger points in the Bluebook are too high for us. Altern... | 297 |
fomc | 1,978 | I think that's as asymmetrical as you can get. | 11 |
fomc | 1,978 | It's quite asymmetrical. But seriously, we don't foresee any circumstances that would suggest we ought to lower the rate below that, particularly in view of [the current] situation and the recent OPEC price action. But we do want leeway to move that rate up in case the M1 does go beyond 4-1/2 percent. Now, we really do... | 122 |
fomc | 1,978 | Thank you, Bob. Nancy. | 7 |
fomc | 1,978 | My view of the economy is that it's remarkably well balanced, considering the stage of the cycle that we are in. And, as you well know, I still feel very strongly that we should sit still and see what we are doing. There are very conflicting numbers--a lot of inconsistencies in the data that we have. I would strongly r... | 144 |
fomc | 1,978 | Did you ever doubt? They're all on this side of the table. | 14 |
fomc | 1,978 | So my strong recommendation is that we stay where we are. We might widen the range on the fed funds. However, if you observe the actual numbers on the fed funds rate, they've been right at the top every time. You know, if you give them the range, then the rate goes to the top of the range rather than the midpoint. We d... | 103 |
fomc | 1,978 | The midpoint is 9-7/8, which is 9.875. | 17 |
fomc | 1,978 | And I would go for a market directive. | 9 |
fomc | 1,978 | All right, thanks, Nancy. Chuck. | 9 |
fomc | 1,978 | Wait, I'm not finished. I agree with Chuck that Switzerland, Germany, and Japan should have taken an action [unintelligible] in the value. There's another inconsistency out there, and that is this downward pressure on the short-term value of the dollar. However, the foreigners are coming in here and buying everything t... | 125 |
fomc | 1,978 | Now, Chuck. | 4 |
fomc | 1,978 | They could be two different entities doing these two different things. Well, I was going to emphasize just briefly without a long-run go-around the very strong nature of the conflicting signals we are getting on the economy. We have an assumption, if you believe the figures, that not just durable goods but nondurables ... | 347 |
fomc | 1,978 | But you're going to have to vote. | 8 |
fomc | 1,978 | I have a position I'm going to take which allows me not to do that. I would say this: The trouble is that we are up against capacity constraints and this has been very bad news to have this last burst because it means we have no room on the up side. We can't make an error on the up side. If we do, we will greatly aggra... | 469 |
fomc | 1,978 | Thank you, Chuck. Paul. | 7 |
fomc | 1,978 | Well, like everybody else, I see a little more momentum in the economy than we anticipated. And I would anticipate that that would continue a while into the new year. [So I see] not much short-term danger, though I do continue to think that there's a substantial risk of an actual downturn in the latter half of 1979, le... | 572 |
fomc | 1,978 | Well, ladies and gentlemen, thank you for two hours of attention. This go-around has indicated about as much unanimity as I've ever seen--namely, confusion. But one interesting point I noticed is that I don't believe anyone actually suggested easing. The discussions were around standing pat or firming or being prepared... | 109 |
fomc | 1,978 | Well, ladies and gentlemen, we can reconvene. I did not indicate my own position. I might say, as I said to some during the break, that the meeting this morning has a certain Biblical quality in that it seems to me the first shall be last and the last shall be first. As I read the discussion--which proves that we [must... | 493 |
fomc | 1,978 | Thank you, Mr. Chairman. As a brief introduction, I would say that the data we are getting on automatic transfer seem to be giving us a reasonable handle on evaluating it and we are going to be continuing with that data [collection] through January. Therefore, I think it's possible to move back toward giving M1 more eq... | 465 |
fomc | 1,978 | If you have an M1 range of 2 to 6 percent during this next period, what do you factor in as being the M1+ addition that you put in? | 36 |
fomc | 1,978 | Well, I would suggest that that would be probably at the bottom of where it is--maybe 0 to 4 or 1/2 to 4. | 33 |
fomc | 1,978 | I mean the growth rate of M1+ in, let's say, the next 4 to 5 weeks. What does it look as though that's going to be? | 34 |
fomc | 1,978 | Well, we have under alternative B a growth rate of a little over 2 percent for the December-January period. I think consistent with the suggested M1 and M2 ranges would be a growth rate just a shade under that. So I would say 1/2 to 4 percent or 0 to 4 percent. | 67 |
fomc | 1,978 | Is there a reason, Steve, that you'd stick to a range for M1 and M2 rather than just putting a cap on each of them? | 30 |
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